Emergency funds: Why you need one

Saving up an emergency fund is a vital part of having healthy finances, so if you haven’t got one or haven’t thought about it before, there’s no time like the present.

An emergency fund is just what it sounds like - a stash of savings set aside for unexpected expenses, like a sudden vet bill, a trip to the mechanics, or a last minute flight. This buffer of savings also means that you’ll be better placed to handle longer term situations, like if you’re unexpectedly out of work or become ill.

Why an emergency fund is so important

Having an emergency fund gives you peace of mind about being ready to tackle life’s curveballs. You never know when you’ll need bond for a new rental at short notice, or wind up with a medical bill you weren’t expecting. An emergency fund means that these emergency situations don’t turn into financial disasters.

Relying on an emergency fund is usually also much better for your long term financial health than turning to a credit card or personal loan. The main reason? When you’re relying on your own savings, there are no repayments or interest to worry about, and no risk of defaulting. 

In a situation where you’re not working or on a tight budget, a savings stash can be a lifesaver.

How much should I save as an emergency buffer?

There’s no hard and fast rule around how much you should save, since your circumstance is personal and unique. When deciding how much to save, consider what kind of costs you might have to cover - your rent or mortgage repayments, vet bills, grocery bill or school fees - and your current budget.

A good rule of thumb is to aim for an emergency fund that would cover three months of your usual living expenses. It might take a while to build up that much money, but doing so gives you a generous buffer for a rainy day.

How to save an emergency fund

Now that you’re clear on how much you’ll need to save and how long that might take you, it’s time to actually make it happen.

Make your goal visible

It’s one thing to have a savings goal in your mind - it’s another to have it in front of your eyes. Making your goal concrete can make it feel so much more real, and keep you motivated to reach it. Whether that’s setting a goal using a savings calculator or creating a reminder note you can stick to the wall and track your progress on. Something you’ll see every day is helpful to keep you on track. This is especially important when saving for an emergency fund, because there’s no holiday, new car or shopping trip at the end – just the peace of mind of a financial buffer.

Create accountability (and get help!)

If you’re trying to form a new habit, having people who will hold you accountable can be a huge help. Saving is no different. Letting the people close to you know that you’re aiming to save money can be a big help, because they can remind you of your goals in moments of weakness. Plus, if your friends and family know you’re saving, you won’t have to explain every time you opt out of an expensive night out or suddenly switch to packing your lunch every day.

Have a “savings first” mentality

Wondering what exactly this means? It’s about making savings a priority in your budget and in your life. So, when you get paid, after you’ve taken care of any necessary bills, like rent, utilities or insurance premiums, your next step should be to add to your savings pile. Instead of saving what’s left when you’ve finished spending, this is about switching your thinking to “savings first”.

Swear off luxuries - for a while

In order to put savings at the top of your priority list, it may be necessary to cut back on some of life’s little luxuries like takeaway food, new clothes or even your Netflix subscription. But don’t worry - it doesn’t have to be forever. Giving up extra costs for a few months can help boost your emergency fund, and once you have that buffer built up, you can go back to spending your free cash on the things you love.

Consider a side hustle

While ditching your daily coffee can help with your new saving habit, if you can find a way to make extra income that will make the process even quicker. Think about picking up a freelancing gig or turning a hobby into a side hustle. The key is to add that extra cash to your savings pile instead of treating it as extra disposable income.

The sooner you start saving your emergency fund, the sooner you’ll have that buffer in place and the peace of mind that comes with it.